Principles and Practices in Managing Financial Records: A Reference Model and Assessment Tool

The

RIGHTS AND RECORDS INSTITUTE

Principles and Practices in

Managing Financial Records:

A Reference Model and

Assessment Tool

Information for Development Programme (infoDEV)

Principles and Practices

in Managing Financial Records:

A Reference Model and Assessment Tool

by

Kimberly Barata, Piers Cain

and Dawn Routledge

designed by

Jennifer Leijten

International Records Management Trust

R

R

I

London, UK March 2001

Published by the International Records Management Trust, Rights and Records Institute and sponsored by the World Bank Information for Development Program (infoDEV).

March 2001

© The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street, N.W.

Washington, D.C. 20433, USA

Produced by the International Records Management Trust Rights and Records Institute

12 John Street London WC1N 2EB United Kingdom

Printed in the United Kingdom

Copies available from: http://www.infodev.org/

ACRONYMS AND ABBREVIATIONS

ICA (International Council on Archives)

IFMS (Integrated Financial Management System) IRMT (International Records Management Trust) ISO (International Standards Organisation)

MPSR (Management of Public Sector Records Study Programme) RCRs (Records Control Requirements)

RM (Records Management) SSM (Soft Systems Methodology)

ACKNOWLEDGEMENTS

The success of this initiative is a result of the support we received from a number of individuals and organisations. We are grateful to the World Bank’s Information for Development programme and the United Kingdom Department for International Development for funding the research. Special thanks go to Mr Clive Smith, World Bank Archivist and Ms Jacqueline Dubow, infoDEV Programme, World Bank without whose encouragement and active support, this project would never have taken off.

In addition, we would like to express our thanks to the governments of The Gambia, Namibia, Tanzania and Zimbabwe and their civil servants at all levels for their kind assistance with our initial research, and for information and advice offered throughout the study.

We would also like to thank the many people who have contributed to the preparation of this reference model, in particular, Mr Ray Bennett, Director UK National Audit Office (retired); Mr Andrew Griffin, IRMT; Dr Michael Parry, Chairman, International Management Consultants Ltd; Mr Kelvin Smith, UK Public Records Office; and Mr Tony Williams, Head, Business Performance Unit, UK Home Office. We would particularly like to thank Mike Haynes, Creative Strategies and Systems for Management (CSSM), for his work on producing the computerised records systems models.

We would like to thank the many people who reviewed the Exposure Draft including Dr Pino Akotia, University of Ghana; Dr Niels Bruebach, University of Marburg; Mr Tom Connors, University of Maryland; Ms Kate Cummings, State Records Authority of New South Wales; Dr Wendy Duff, University of Toronto; Mr Don Brech, Records Management International; Dr Anne Thurston, IRMT; Ms Elizabeth Box, IRMT; Mr Neil McCallum, IRMT; Ms Tanya Karlebach, IRMT; Ms Vicki Lemieux, University of West Indies; Professor Alan Doig, Liverpool Business School; Mr David Bearman, Archives and Museums Informatics; Mr David Gray, CIPFA; Mr Pitt Kuan Wah, National Archives of Singapore; Mr Jeremy Pope, Transparency International; Dr Justus Wamukoya, Moi University; Mr Michael Wettengel, Bundesarchiv, Germany; and Mr Geoffrey Yeo, University College London. We are also grateful for the support given to us by our Steering Committee: Mr Ray Bennett, Director UK National Audit Office (retired); Mr Peter Dean, World Bank Loan Department; Ms Elizabeth Kariuki, PriceWaterhouseCoopers; Dr Michael Parry, Chairman, International Management Consultants Ltd; and Mr James P Wesberry, Jr, Director, Americas Accountability/Anticorruption Project (AAA Project).

TABLE OF CONTENTS

Page Nos

Reference Model Overview

Preface

Foreword

Introduction

PART I: Principles and Practices

Chapter 1 Managing Financial Records as a Strategic Resource 11

Chapter 2 The Control System 21

Chapter 3 The Control Framework 32

Chapter 4 Facilities and Maintenance 38

Chapter 5 Monitoring and Compliance 45

Chapter 6 Human Resources 48

PART II: Diagnosing the Weaknesses

Chapter 7 Records Management Systems Assessment 52

Chapter 8 Records Management Programme Assessment 97 Chapter 9 Facilities and Maintenance Assessment 117

Chapter 10 Human Resources Assessment 124

Further Information

REFERENCE

MODEL

1

Reference Model Overview

ASSESSMENT TOOLKIT Chapter One Provides an overview of basic records management concepts

and principles. _{Chapters Two to Six}

Defines good practice principles for

managing financial records against which programmes and systems can be assessed and monitored. Good Practice Definition Human Resources and Skills Assessment Chapter Nine Provides worksheets to carry out an assessment of the facilities and maintenance of systems that manage records.

Chapter Eight

Provides an assessment tool to gather information to produce a summary of the state of financial records management in the publicsector.

Managing Financial Records as a Strategic Resource

Chapter Seven

Provides worksheets to carry out a Records Control Requirements assessment and rate systems accordingly. Systems Assessment Programme Assessment Facilities and Maintenance Assessment Chapter Ten

Provides a skills matrix for assessing the skills and knowledge required at different levels for managing financial records.

PREFACE

Many countries around the world are in the process of strengthening their democratic institutions. More generally, public disquiet and awareness of widespread corruption on virtually every continent has focused attention on the need for institution building, especially the need for greater financial accountability.

Public sector accountability, particularly financial accountability, is also a high priority on the bilateral and multilateral donors’ aid agenda. Donor agencies are de facto stakeholders in financial management reforms through the provision of funding in the form of grants or loans for many public sector projects. However, aid agencies are only just beginning to recognise the need to strengthen records management systems as part of wider institutional capacity building and policy reforms. This is partly because, hitherto, there has not been a readily accessible reference model for development specialists and government financial managers that specifies how record keeping systems should be designed and implemented to support financial management systems. Nor have there been tools for assessing how well existing arrangements and systems are performing. This publication fills these gaps.

This Reference Model is the principal product of the ‘From Accounting to Accountability: Managing Accounting Records as a Strategic Resource’ project. The Rights and Records Institute has carried out the project with funding from the World Bank Information for Development (infoDEV) programme and the UK Department for International Development. The project focussed on public sector financial records in sub-Saharan Africa. Case studies from Namibia, Tanzania and Zimbabwe have been produced.

The research called attention to the deterioration of records systems that should underpin financial management and thus provide a safeguard against corruption and fraud; it placed the decline of record keeping systems in the context of the strategies adopted by donor agencies and developing countries to promote better financial management accountability, and reduce the spread of economic crimes. Increasingly, these strategies include introducing electronic systems to co-ordinate and manage government financial functions.

The study also identified good practice, both internationally and locally, and strategies that are working well in developing country contexts. The findings are distilled in this Reference Model. It is intended to be of use to both the accounting and information professions, by those who are designing new systems and those who need to improve existing systems. It is also hoped that the reference model will assist in changing attitudes in the development community, by specifying good practice for managing both paper and electronic records and providing diagnostic tools to assess whether existing arrangements are adequate.

Piers Cain Director, Rights and Records Institute London, March 2001

FOREWORD

In the 20th Century records came to be unmanageable and unmanaged in many countries. Manual records and increasing volumes of documentation of vastly growing government activities outpaced human capabilities and government resources.

Today’s 21st Century technology and the growing demand for better accountability and more transparency coincide to open a new century of strategic resources available for public sector managers. Timely indeed is this century-opening contribution by the International Records Management Trust providing a reference model for modern management of financial records. During the 20th Century the concept of the integral nature of financial management systems and records nearly completely disappeared as governments and their transactions became so fragmented that effective integration of data became impossible under the systems then in effect. This happened so fast during the period of public sector and public service expansion that no one actually realized that governments were losing control over the information vital to their own management. The philosophy of dispersed record keeping among the different offices of governments without any framework for consistency resulted in the absence of any harmony as to the philosophy or practice of keeping financial, not to mention non-financial, records.

Because there was very little relationship between financial records and operational records, governments could never determine the degree of efficiency and effectiveness of their programs and activities. Often government accounting consisted of what old time auditors called “cigar box accounting” with separate cubby holes, boxes or other containers for paper items that were different, and separate recording in non-existent accounting entities or funds to segregate their recording in like manner to the papers’ physical segregation.

Financial records are but some of the records that constitute the foundation of accountability that in turn supports the edifice of democratic government. Other records are likewise important. But those records that permit the review and audit of what has been transacted in the name of the citizenry are perhaps even more important than all others. Well maintained financial records permit accountants to prepare useful financial reports for managing resources and for communicating their use to the public. Well maintained financial records permit independent auditors to give the public assurance that financial reports are credible. Well maintained financial records, reports and audits thus constitute the bridge between the politician, the bureaucracy and the citizen that must exist to provide communication, retroalimentation and credibility in a democratic state.

This pioneering compilation and presentation of good practices and guides for the management of financial records fulfils a century-old need at the beginning of a new century. Its Reference Model for systems assessment, organization, control and the resultant increased degree of accountability provides a beacon to guide financial managers and government officials across the world is shedding light upon the mysteries of the great bureaucratic entities that constitute 21st Century governments.

No publication could be more timely, appropriate or useful, than one that opens the long closed door of comprehensible transparency to the financial affairs of governments.

Jim Wesberry Americas Accountability/Anticorruption Project (AAA Project)

Introduction 4

INTRODUCTION

Purpose and scope of the Reference Model

The Reference Model highlights the contribution of records management to the mainstream objectives of government. The management of public finance is a fundamental responsibility of any government. A sound financial management system supports national accountability by disclosing to the public and to the government information on the use of resources past, present and future. In an era of economic policy reform, this has become the critical element determining the overall ability to manage the economy and to ensure transparent, accountable government.

The Reference Model defines good practice for the management of financial records and provides tools to evaluate and monitor the performance of record keeping systems. It focuses on the transaction records that are used by and produced as a result of financial management functions, in particular the accounting function. Normally, these are required for audit purposes. Relevant administrative, operational and policy records are also taken into account, including tenders, contracts, accounting directives, loan agreements and so on. Many countries are introducing computerised integrated financial management systems that include all financial functions from budgeting to audit. The Reference Model takes account of the requirements for managing records in computerised systems and analyses the optimal ways of creating the linkages between the manual (ie paper-based) and computerised parts of systems.

The scope of the Reference Model extends from the national programme level to the individual records management systems employed within line ministries and local authorities to control financial records.

Six Questions to Answer

Is the government planning to introduce a new financial management system? Do the Auditor General’s reports complain of large volumes of unvouched or inadequately vouched expenditure?

Do management or auditors complain they are unable to obtain source documents within a reasonable period of time?

Are piles of disorganised financial records routinely visible in government offices?

Is there a significant problem of fraud in the revenue collection area?

Do government suppliers or contractors complain that departments are unable to answer reasonable queries about their contracts or tender bids?

5 Introduction

The financial records to which this Reference Model refers comprise broadly four categories:

• paper transaction records

• electronic transaction records managed by computerised financial management systems

• systems documentation and other records held by information technology units

• paper correspondence, contracts and other records held in registry filing systems.

Most of the financial records to which this reference model refers are transaction records. These might include purchase orders, payment vouchers, invoices, payroll records, cash books, subsistence and travel expense reports, bills of lading, value added tax (VAT) receipts, inland revenue returns and so on. However, contracts, tenders, loan agreements, payroll case files and other documents that support financial transactions must also be part of a comprehensive programme; where appropriate the links between the two must be maintained.

Applicability

The Reference Model is intended primarily for use by government financial managers, records managers and development advisers wishing to design new financial management systems or by those wishing to evaluate whether existing arrangements for managing financial records are adequate. The tools were developed for a developing country context. However, financial systems are governed by established international standards and are largely similar the world over, therefore the guidance provided should apply to most financial systems. The tools take into account the control environment, capacity and sustainability of existing arrangements. This will enable governments to identify areas of weakness that require improvement and plan interventions. It is expected that the assessments would be carried out by of a professional records manager and a qualified accountant working in partnership.

The Reference Model was developed to evaluate and strengthen financial record systems in countries that, broadly speaking, are included in the British tradition of administrative practice. In countries that follow another administrative tradition, there may be differences in practice but not in general principle. The Reference Model does take into account international good practice in the fields of accounting and records management.1

1

Judith Ellis, ed. Keeping Archives. Second Edition (Port Melbourne, Australia: D W Thorpe in association with the Australian Society of Archivists Inc., 1993); Judith Fortson. Disaster Planning and Recovery: A How-To-Do-It-Manual for Librarians and Archivists. Number 21 (New York: Neal-Schuman Publishers, Inc., 1992); Ira A Penn, Gail Pennix, and Jim Coulson. Records Management Handbook. Second Edition. (Hampshire, England: Gower Publishing Limited, 1994); Mary F Robek, Gerald F Brown and Wolmer O Maedke. Information and Records Management. Third Edition (Lake Forest, IL: Glencoe, Macmillan/McGraw-Hill, 1987); Solinet Preservation Services Leaflet Series.

Introduction 6

Rationale

The Reference Model provides a means of improving government financial accountability by strengthening financial records systems. Records managers are rarely involved in the design of financial management systems, the assumption being that the management of financial records is the responsibility of accountants. In the past this was of little consequence, but as more and more organisations introduce sophisticated computerised integrated financial management systems, the need to implement records management functionality at the design stage becomes more important. In practice, the maintenance of financial records often falls in the gap between the two professions. This problem tends to extend through all financial management functions.

Accountants create records to provide evidence without which efficient management is impossible. Moreover, a large part of the auditor’s job is to assess the accuracies, completeness and authority of financial records. However, few accounting staff are introduced to actual records management principles and practices. Many financial managers and accounting clerks are unfamiliar with concepts of destroying records and identifying records for archival purposes. As a result, most accountants insist that records be kept beyond statutory requirements or indefinitely, which in turn wastes valuable office space and resources in managing these records.

Records must be managed from creation until destruction or transfer to an archives repository for permanent preservation. This should be the role of the records manager. The records manager for financial records could be a separate post, or where the workload is not sufficient, a role assigned to an existing position with a broader remit of responsibilities. The key point is the post holder should have appropriate knowledge of records management principles and practices especially how records should be kept and when they should be transferred or destroyed.

Conformance

Records management programmes differ considerably in scope and complexity. It would be difficult to find two identical programmes, even among organisations of similar size and purpose. They are as varied in structure and size as the organisations they serve. However, a well functioning programme depends on:

• a well-established tradition of good record keeping

• a centralised competence for records management programmes

• the support from senior management for record keeping issues

• competent and well-trained personnel.

The approach to good practice used in the Reference Model and the associated assessment tools is based on developing a thorough understanding of what exists on the ground and emphasises a ‘good fit’ rather than any one-size-fits-all notion of ‘best practice’. The Reference Model defines what needs to be in place to ensure that financial records are managed well.

7 Introduction

Those using the tools included in the Reference Model should take into account what is working on the ground and give greater weight to what is affordable and realistic in the specific circumstances pertaining in the country concerned. However, it should be noted that in many countries there is a tendency to ignore infrastructure and support issues when implementing large-scale financial management projects, to the detriment of their long-term sustainability. This Reference Model, if used appropriately, could reduce this risk. Therefore it is important that the concept of ‘good fit’ takes into account both short-term needs and the long-term sustainability of the systems.

Related Standards

Good practice has been defined from a number of sources including the draft International Standards Organisation standard ISO 15489 (Records Management), the Australian Records Management Standard (AS 4390/1996) produced by Standards Australia, and other seminal records management texts. Thus, the reference model is also the product of the practical experience of the International Records Management Trust over ten years in a broad range of countries in Africa and the Caribbean.

Document Structure

The document is divided into two parts. Part I provides information about good practices for improving the management of financial records in the public sector. Part II provides a toolkit for diagnosing weaknesses and planning solutions. Part I provides the statements of good practice against which records management systems and programmes can be assessed using Part II. Part I comprises chapters one to six.

Chapter One introduces the basic principles and concepts underpinning records management systems. Fundamental to this is an understanding of the characteristics of records and what makes them valuable as evidence. The chapter also seeks to define the role of records management in supporting the objectives of financial management.

The good practice principles defined in these chapters address the problems and concerns for managing public sector financial records in Commonwealth developing countries. However, the principles provided are not necessarily exclusive to this environment and lessons can be drawn and applied to other types of records.

Good practices are documented strategies and tactics employed by organisations. No organisation is ‘best-in-class’ in every area. Good practice as defined here reflects the continuous process of learning, feedback, reflection and analysis of what works (and what does not) and why. It draws on practical experiences and professional standards. Organisations that pursue appropriate good practices deliver higher levels of performance.

Introduction 8

Chapters Two through Six set down at a high level the generic principles for managing financial records. They distil good practice and practical experience applicable to the task of implementation. The information provided is derived from a variety of sources including: the draft international Records Management Standard (ISO 15489), the Records Management Standard (AS 4390.1/1996) produced by Standards Australia, and other seminal records management texts, including: Judith Ellis, ed. Keeping Archives. Second Edition (Port Melbourne, Australia: D W Thorpe in association with the Australian Society of Archivists Inc., 1993); Judith Fortson. Disaster Planning and Recovery: A How-To-Do-It-Manual for Librarians and Archivists. Number 21 (New York: Neal-Schuman Publishers, Inc., 1992); Ira A Penn, Gail Pennix, and Jim Coulson. Records Management Handbook. Second Edition. (Hampshire, England: Gower Publishing Limited, 1994); Mary F Robek, Gerald F Brown and Wolmer O Maedke. Information and Records Management. Third Edition (Lake Forest, IL: Glencoe, Macmillan/McGraw-Hill, 1987); Solinet Preservation Services Leaflet Series. In addition, these chapters reflect the collective work of the International Records Management Trust (IRMT) over ten years in a broad range of countries. This includes experience in analysing financial records systems in Belize, The Gambia, Ghana, Namibia, Tanzania, Uganda and Zimbabwe. This chapter also draws upon the Trust’s Management of Public Sector Records (MPSR) study programme.2

The good practice advocated here is neither prescriptive nor exclusive. Consequently, the principles and practices described should not be construed as being the only way to implement a record keeping system or a records management programme.

Chapter Two describes the essential characteristics and functions of a records management control system, including:

• registration and classification

• tracking

• access and retrieval

• maintaining audit trails

• scheduling and retention

• transfer

• destruction.

2

The MPSR study programme was developed by IRMT in a joint enterprise with the International Council on Archives (ICA). It comprises a suite of modules, manuals and case studies covering all aspects of an integrated records and archives programme. In developing the MPSR programme, the aim was to draw on global good practice and to adapt it to the needs of developing countries. The primary audience for the programme is working professionals, particularly those in Commonwealth countries that have emerged from or adopted an English common law model of government. Additional information on the programme is available on the IRMT website at http://www.irmt.org/education/education.html

9 Introduction

Chapter Three examines the records management control framework, which includes:

• legal and regulatory framework

• standards and regulations affecting records

• records management policy statements

• the institutional framework.

It also defines Records Control Requirements for Paper Systems and Records Control Requirements for Computerised Systems, with associated diagrams.

Chapter Four describes maintenance and facilities requirements:

• storage of paper records

• storage of electronic records

• vital records and disaster planning.

Chapter Five provides guidance on monitoring and compliance to ensure the sustainability of records management systems.

Chapter Six addresses human resource issues including:

• career structure

• competencies

• training.

Part II provides a toolkit for diagnosing the weaknesses and improving the management of financial records in the public sector. It comprises Chapters Seven to Nine. The assessments are derived from the good practice outlined in Part I. This includes:

• Chapter Seven is a Records Management Systems Assessment. It is used to provide a systematic assessment of the functioning of the record keeping system for a particular computerised financial management function or for paper financial records kept by a particular agency. Outputs include an assessment against good practice, an analysis of weaknesses and a prioritised intervention plan.

• Chapter Eight is a Records Management Programme Assessment. It is used to assess the state of financial records held in ministries and agencies throughout government and the records management environment at the national level. Outputs include an assessment against good practice which can be used to prioritise interventions.

Introduction 10

• Chapter Nine is a Facilities and Maintenance Assessment. It is used to assess the storage conditions in which financial records are kept and provisions for preventing disasters. Outputs include an assessment against good practice which can be used to prioritise interventions.

• Chapter Ten is a Human Resources Assessment. It is used to provide a systematic assessment of the staff structures and training needs throughout government. Outputs include an analysis of gaps in the structures, an assessment against good practice for developing a training programme.

Following the toolkit, there is a section in Further Information, which provides contact details of useful international, regional and national organisations plus a select bibliography. Lastly, there is a Glossary which defines key terms used throughout the Reference Model.

PART I

Part I: Managing Financial Records as a Strategic Resource 11

MANAGING FINANCIAL RECORDS AS A STRATEGIC RESOURCE

Basic Principles and Concepts of Records Management

What is a Record?

The term record includes all the documents that institutions or individuals create or receive in the course of administrative and operational transactions. The records themselves form a part of or provide evidence of such transactions. As evidence, they are subsequently maintained by those responsible for the transactions, who keep the records for their own future use or others with a legitimate interest in the records, eg Auditors.

Records come in a variety of media. Many are still created on paper, for example, correspondence, vouchers, contracts and supporting documentation. Information may also be recorded on paper in ledgers, journals and registers, or they may be in the form of computer printouts. Such records may be hand-written, hand-drawn, typed or printed. Increasingly, computers create financial records, and they may only exist in electronic format. Electronic mail is a form of record.

The Nature of Records

While all records convey information, not all sources of information are necessarily records. For example, a published book or an externally provided database will not be a record, although information selected from it and reused in a new context may itself become a record.

Records arise from transactions or events. They should have four important qualities or characteristics:

• records are fixed

• records have authority

• records are unique

• records are authentic.

CHAPTER ONE

A record is defined as a document regardless of form or medium created, received, maintained and used by an organisation (public or private) or an individual in pursuance of legal obligations or in the transaction of business, of which it forms a part or provides evidence.

12 Part I: Managing Financial Records as a Strategic Resource

Records are fixed

During the creation of a record, it will go through a process of development and change, ie drafting minutes for review and approval. Once this process of creation is finished and the document is considered complete, it may be regarded as a record. In order to provide evidence, the record must now be fixed and must not be susceptible to change. If a record is changed or manipulated in some way, it no longer provides evidence of the transaction it originally documented.

Records have authority

Records provide the ‘official’ evidence of the activity or transaction they document. To be reliable they must have authority, ie by whom was the record generated or issued, under what authority and can this authority be proved? Obvious indicators of the official nature of records are signatures (also electronic signatures), letterheads, seals and office stamps. However, not all records have such apparent indicators. Therefore the continuous safekeeping of records also protects their reliability. It is also important to note that a record can be reliable in the sense that it is accurate and complete, however, it may have been created by someone without due authority to effect that act for which the record was created.

Records are unique

Records are unique in the sense that, maintained in their appropriate context, they are a component in a unique compilation or sequence of transactions rather than isolated bits of information. They have meaning because they were generated during a particular transaction or business process. The records make sense within the context of the overall functions and activities of the individual or organisation that created or used them.

Records are authentic

It must be possible to prove that records are what they say they are. The authenticity of a record is derived from the record keeping system in which it was created or received, maintained and used. A record is authentic if it can be verified that it is now exactly as it was when first transmitted or set aside for retention.

Records may be produced in a range of systems and stored in a range of media, including paper and electronic forms; different versions may be stored in different media in different locations. This phenomenon is increasing with the growth of information communication technology.

Electronic Records (ie Computerised Records)

An electronic record is a record that can be manipulated, transmitted or processed by a computer. It is

• written on magnetic or optical medium (including magnetic tapes, cassettes, CD-ROMs, hard disks and diskettes)

Part I: Managing Financial Records as a Strategic Resource 13

• recorded digitally

• accessed using computer software and hardware

• easily manipulated (that is updated, deleted and so on).

Traditionally records have been physical objects. However electronic records are recorded on a medium such as a magnetic tape or a disk, but their status as records is not dependent upon that medium; the medium is not the record.

Computer systems become obsolete so rapidly that it is unrealistic for these systems to remain useable for the length of time it may be necessary to retain the records created by them. Electronic records, which are to be retained for more than a very short period, have to be migrated on to new systems in such a way that they can still be read and understood while maintaining their integrity and authenticity.

Although the technological challenges in managing electronic records are formidable, the management issues are equally as important. Electronic records are fragile. They cannot survive without active intervention to migrate the records on to new systems. This process is expensive and requires the implementation of policies and procedures that affect the working practices of the entire organisation.

Financial managers must ensure that records are available for legal and audit purposes. This applies to both paper and electronic records. However, depending on the legal jurisdiction there may be few precedents for the admissibility of computer records in a court of law. The weight of electronic records as legal evidence may be open to challenge, unless controls can be shown to be so strong as to remove reasonable doubt about the authenticity and integrity of the data.

Records management

A Records management programme is concerned with achieving economy and efficiency in the creation, maintenance, use and disposal of the records of an organisation and in making the information they contain available in support of the business of that organisation. The objective is to furnish accurate and complete information when it is required to carry out the functions and meet the objectives of government.

Records management is the area of general management responsible for maintaining records. It includes the management of records from creation and capture, through to maintenance and use and their ultimate transfer to an archives or destruction.3 The records controls through which this management is conducted are described in Chapter Three.

3 _{There are two schools of thought regarding the description of records management. The first is the life cycle} approach is an analogy drawn from the life of a biological organism. A records is created, used for so long as it has value and is then disposed of by destruction or by transfer to an archival institution. The continuum concept suggests that four actions continue or recur throughout the life of a record: identification; intellectual control; provision of access; and physical control.

14 Part I: Managing Financial Records as a Strategic Resource

An important principle in records management is that records have different phases through which they pass as follows:

Current records: records regularly used for the conduct of the current business of an

organisation. These will normally be maintained in or near their place of origin or in a records office.

Semi-current records: records required only infrequently in the conduct of current

business. These will normally be maintained in a records centre or other intermediate storage pending their ultimate disposal.

Archives: these are records that have been identified as having long-term value and

are therefore selected for permanent preservation. Archives of government will normally be preserved in the national records and archives institution.

Allied to this are two further principles:

Provenance: Provenance is the context; it makes the record evidence and makes it

understandable by establishing who created or used a record, where, when and why. Therefore the records of separate agencies must be managed separately even if the agencies in question were involved in similar activities. In addition, paper records must be maintained according to the original order in which they were filed and retrieved, as that order reflects the way in which the records were created and used.

Levels of arrangement and description: These are two integrated practices designed

to make records physically and intellectually available for use. Central to these activities is the understanding that records can be arranged and described at levels. These levels are used to allow records to be managed collectively rather than at the level of the individual item. The key level of arrangement is the records series. The records series brings together those records relating to the same function or activity or having some other relationship arising from their creation, receipt or use.

Key to the effective functioning of a records management system is the transfer and destruction of records when necessary. Failure to do this is the chief cause in the breakdown of systems. Often systems are not in place to ensure that when records are no longer required; frequently they are transferred to less costly storage, freeing up office space for current business. In addition, both office and intermediate storage can also become congested with records that have no further operational value and should be destroyed.

Current

Semi-Current

Archival

Offices Records Centre (Off-site/Remote Storage)

National Records & Archives Institution

Part I: Managing Financial Records as a Strategic Resource 15

Situating Records Management in the Context of Financial

Management

Government is accountable to its citizens through the legislature. The legislature approves the budget and spending plans and government is obliged to demonstrate that its spending is in accordance with what has been approved. In the public sector, the rendering of accounts to public scrutiny is critical to meeting accountability requirements.

Record keeping is a fundamental activity of public administration and is essential to financial management. Financial records are the records that result from the conduct of business and activities relating to accounting and auditing; they provide prima facie evidence that:

• resources have been received, committed or spent

• assets have been acquired or disposed of

• government agencies have certain liabilities.

Certain financial records (eg ledgers, cash books, vote books) also provide a basis for the preparation of financial statements. Effective financial management systems provide decision makers and public sector managers with the means to

• ensure resources are matched to objectives, ie ensuring that money is allocated and spent in accordance with the government’s strategic priorities by controlling the budget and publishing accounts of actual expenditure

• strengthen accountability and minimise the risks of implementing unsustainable policies, ie comprehensive information generated from the system facilitates managers to make informed policy decisions and prioritise resource allocation.

Financial management systems require records as inputs and generate records as outputs. The following table illustrates the types of record inputs and outputs that different financial systems might use or produce.

Financial Management: Main Information Systems and Records

Function Main Information System(s) Record Inputs Include: Record Outputs Include:

Macro-fiscal planning systems for macroeconomic forecasting external economic data; public sector work program document; fiscal reports (previous); expenditure reviews (previous); accounts data; data on tax revenue collections; data on non-tax revenue collections; data on domestic borrowings; data on external borrowings grants/grants in aid; debt service projections; data on civil service complement/emoluments/benefits

macroeconomic framework; public sector investment programme; fiscal plan

Budget preparation systems for budget preparation; spending agency budget preparation systems; public enterprise budget preparation systems; tax systems; customs systems

macroeconomic framework document, public sector investment programme; fiscal plan; public sector work programme; expenditure reviews (previous); fiscal reports (previous); budget guidelines and ceilings; line agency budget submissions; draft budget

initial budgetary allocations to

programmes/projects’ budget call circular; line agency budget submissions; draft budget; approved budget

Budget implementation systems for budget execution and fiscal reporting; core government accounting system; spending agency budget execution systems; public enterprise budget execution systems; payroll and pension systems; personnel information systems; purchasing systems

expenditure review; public sector work programme; fiscal reports; fiscal plan; public sector investment programme; approved budget, public sector work programme; cash flow forecasts; fiscal reports; contracts; purchase requests; cost evaluations; bids; reviews of contractor performance; inventory documents; personnel documents; payroll documents; expenditure authorisations; commitment transactions; invoices; vouchers; shipping documents; inventory documents; receiving reports; payment authorisations

expenditure plan; budget warrants; purchase orders; procurement transactions; payment vouchers; payment receipt transactions; virement request transactions; expenditure authorisations P a rt I: M a n a g in g Financial Recor d s as a Str a te g ic Resour ce 16

Financial Management: Main Information Systems and Records

Function Main Information System(s) Record Inputs Include: Record Outputs Include:

Budget monitoring and evaluation

systems for monitoring investment projects; systems for monitoring public enterprises; spending agency investment projects monitoring systems

approved budget; public sector work programme; fiscal plan; public sector investment programme; macroeconomic framework; fiscal reports

fiscal reports; expenditure reviews

Cash management cash management systems cash flow forecasts; fiscal reports; expenditure review; data on domestic borrowings; approved budget; public sector work programme; fiscal plan; macroeconomic framework

liquidity position; issues and redemptions of government securities

Debt management debt management systems fiscal plans; public sector investment programme; fiscal reports; expenditure reviews; data on issues and redemptions of government securities; approved budget; public sector work programme

data on domestic borrowings

Foreign aid management foreign assistance co-ordination system public sector investment programme; fiscal plan; approved budget; public sector work programme; approved budget; data on external borrowings/grants/etc

data on external borrowings/grants/grants-in-aid; data on foreign aid

disbursements/repayments

Revenue administration tax administration systems; customs administration systems

macroeconomic framework; fiscal plan; approved budget

data on tax revenue/collections; data on non-tax revenue/collections

Accounts administration core government accounting system approved budget; public sector work programme; financial transactions; data on government receipts/receivables; data on government payment/payables;

expenditure authorisations

balance sheets; trial balance; general ledgers; subsidiary ledgers; accounts receivable ledgers; accounts payables ledgers; fixed-assets accounts ledgers; cost accounting reports

Auditing systems for auditing work programme; government books of accounts – ledgers – transactions; audit plan; assets and liabilities

audit reports P a rt I: M a n a g in g Financial Recor d s as a Str a te g ic Resour ce 17

18 Part I: Managing Financial Records as a Strategic Resource

The diagram Financial Management and Accountability Framework shows how records management fits into the broader structures that exist to ensure that public sector revenue, expenditure and assets are properly accounted for. At the centre is the Process where financial transactions take place by means of accounting and other financial management systems. Documents are used as inputs into the financial management system which produces output documents as a result of processing financial transactions. In order to ensure that these transactions are authorised and are in accordance with the budget approved by parliament, the transactions must be carried out in accordance with rules and procedures set out in the law, professional practices and codes. If applicable, these should include the relevant national or international standard for records management and records management procedures, usually issued by the national records and archives institution.4

The financial management function has very strong monitoring mechanisms by means of internal and external audit; internal audit reports to management and external audit reports to the public accounts committee and ultimately the legislature. In many countries, the system for records management inspection is much less developed, but is equally important for ensuring that records management procedures and standards are being consistently applied across government.

The final products are financial reports and statements to Parliament via the Public Accounts Committee, the Executive (including civil service managers) and the public either directly or through the media.

The second diagram, Institutional Systems Process Level expresses the relationships modelled in the Financial Management and Accountability Framework diagram within the context of individual line ministries. The purpose is to illustrate that the records management function is one of the support services that every ministry needs and is typically located in the part of the ministerial organisation structure devoted to support services.

These diagrams represent an ideal. In many countries the institutional arrangements fall short of good practice.

4

Most countries do not at present have a National Standard. However, the International Organization for Standardization (ISO) has a draft International Records Management Standard (ISO 15489).

CONTROL

FRAMEWORK

RULES

Constitution

Legislation

Accounting and Auditing

Standards

Records Management

Standard

PROCEDURES

Financial Instructions

Procedures Manuals

Records Management

Procedures

COMPLIANCE &

MONITORING

Audit (Internal and

External)

Records Management

Inspection

PROCESSES

input and source

documents/data

output

documents/data

ACCOUNTABILITY

LEVEL

Parliament

Public Accounts

Committee

Executive (Managers)

Public

Financial Management and Accountability Framework

P a rt I: M a n a g in g Financial Recor d s as a Str a te g ic Resour ce 19

Institutional Systems Process Level

Ministry B

Ministry C

Ministry A

FINANCIAL MANAGEMENT

SUPPORT

SERVICES

ACCOUNTABILITY

LEVEL

Public Accounts

Committee

Auditor General

Public Sector Financial

Management

(ie Ministry of Finance)

Budgeting Accounting Internal Audit

CONTROL FRAMEWORK <procedures> CONTROL FRAMEWORK <regulations> Par t I : M a nag

ing Financial Recor

d s as a Str a te g ic Resour ce 20 receive information process information manage information

Financial

Management System

Part I: The Control System 21

THE CONTROL SYSTEM

Introduction

A records management control system is vital to ensuring that the financial records created, received and used by an organisation during its daily activities are sufficient, reliable, relevant and easily accessible. This chapter introduces briefly the process of capturing financial records into a system and the key records control functions required to manage them for operational and audit purposes.

Records Capture

Capturing records involves determining which documents the system will control. This in turn implies decisions about how the records are used, who may have access to them and how long they are to be retained.

The financial management system should be designed to capture all financial transaction records for the period of time determined by legislation. In a paper-based records control system, capture is achieved by physically placing a document into a sequence within a file or folder or, in the case of transaction records, in a batch. Adding papers to a file (ie capturing the record) becomes a conscious process of deliberately placing it in a pre-defined and known sequence of documents. Paper added progressively to files should be dated or numbered sequentially to provide additional security in defining the sequence of action.

Additional indexing points may be added subsequently to the file to ensure that the specific document can be located and retrieved. Disposal and access conditions may be applied by adding notes on the file or in control systems. It should also be understood that financial documents, such as contracts and tenders should also be captured and links provided to the relevant transaction records (eg tender board numbers). Increasingly these links must extend from manual systems to computerised systems and then return to manual systems to take account of paper source documents, computerised accounting records and printed outputs (eg financial reports).

Incorporating the creation of a document as part of a standard process also acts as a form of records capture. This process locates the document within the context of the action that needs to take place following its creation or receipt and acts as an acknowledgement that it is taking part in business transactions. For example, this may apply to the accumulation of paper documents that comprise the record of a purchase: quotation + purchase requisition + purchase order + invoice + payment voucher = procurement record.

22 Part I: The Control System

Computerised financial management systems capture financial records in a more deliberate process, which for all intents and purposes is the same as registration in a paper system (see Registration and Classification Section which follows). In an electronic environment, records should be captured along with their metadata. Metadata helps a record to be retrieved and used easily over time.

Capturing records is a process well understood by accountants and financial managers and is incorporated into regulations and procedures. Yet control is often lost once a transaction is complete (ie payment is effected; payment voucher referenced with cheque details and stamped ‘paid’). There is little awareness of the records control systems required to maintain the usefulness of the record over time and to ensure its disposal when no longer required.

Metadata

Computerised financial systems which capture records also need to capture metadata associated with the record in a way that:

• describes the record both for what it contains and the context of the business taking place • enables that record to be a fixed

representation of action

• enables the record to be retrieved and rendered meaningfully.

These aspects are often referred to as context,

structure and content. Metadata is an important

element in any records and archives programme where the object is to preserve the authenticity and integrity of the data and records and to retain the context with which to analyse the actual records. In addition, it is a critical factor in ensuring that records can be found, retrieved and accessed easily.

Metadata is data about data; it is an abstraction of the data. In effect it is the information about a record that explains the technical and administrative processes used to create, manipulate, use and store that record. For example, corporate name = Ministry of Finance; function = debt management; document type = database.

Records Inventories

Once captured, records need to be managed. However before records management systems can be designed it is important to understand what records exist, in what format and where they are located. Without this information systems are unlikely to meet the needs of financial managers. A records inventory is a key tool used to find out everything necessary for the design, justification and establishment of a records control system. It contains basic information regarding the quantity, physical form and type, physical condition, storage facilities, rate of accumulation, uses and similar data about the records of an organisation.

Carrying out an inventory of financial records will give a better understanding of the financial management functions and the records created by them. It will enable the records manager to identify all record series and the extent of their use. The greatest value of the inventory is that it gives a reasonably objective and complete overview of the records and their uses. In addition, the process of compiling an inventory of financial records helps the organisation to:

• know what information exists

• identify the relevant records and the procedures for working with them • learn the users’ information needs

Part I: The Control System 23

Overview of the Control Process

The essential characteristics of a records management control system for financial records consist of registration and classification, tracking, maintaining an audit trail, access and retrieval, scheduling and retention, destruction and transfer to the appropriate archive authority. The system should reflect how records relate to the business of the organisation and its business processes. This is particularly important in an electronic environment where adequate records will not be captured and retained unless the system is properly designed. The records management processes

that comprise the records control system below are presented as if they occur in a sequence. In many records systems, particularly electronic records systems, different functions may take place simultaneously or in a different order from that described. The diagram that follows shows the broad relationships between the different records controls used to manage financial records. It provides a top-level view of the whole system for managing financial records. Arrows extend from the records controls (eg register, retain and so on) to indicate that each control is made up of a series of activities (or functions). (See the diagrams provided as part of the Records Control Requirements: Computerised Systems in Chapter Seven (pages 62 to 75). These expanded activities are derived from the Records Control Requirements for computerised systems described later in the chapter. The model was produced using Soft Systems Methodology (SSM).

Soft Systems Methodology (SSM) SSM has evolved out of a 30-year programme of action research pioneered by Professor Peter Checkland at Lancaster University, UK. It is rooted in the core systems concepts of emergence, hierarchy, communication and control. The approach has been developed specifically to deal with complex strategic and information issues in large private and public sector organisations particularly where multiple perspectives need to be taken into account and accommodations reached.

SSM uses models of purposeful human activity to learn about and bring clarity to confused problem situations. It has proved to be especially helpful in helping organisations to determine their information needs in such environments. Government accounting systems are essentially information or records systems used for financial management. They are used to financially manage the operational delivery of public services, often through complex organisational arrangements. It is difficult for an individual working in one part of a government organisation to gain an overview and so have a better understanding of the relevance of their own role and the relationship between the work of their department and that of others. Thus the generic models of SSM help to provide a vehicle for managers to learn about the whole system for managing financial records and the role that they play.

A System for Managing Financial Records

Looks at these areas for operational and audit purposes

……etc

Registration and Classification are modelled as a single system, as are Schedule and Retain, and Access and Retrieval.

RECORDS CONTROL REQUIREMENTS MODEL

Destroy Register Transfer Retrieve Retain Access Audit Track P a rt I: Th e C o n tro l S y stem 24

Part I: The Control System 25

Registration and Classification

Registration

Registration provides evidence that a record has been created or received into a records system. It formalises the capture of the record. It involves recording brief descriptive information about the record in a register, and assigning the record a unique identifier. Although implicit in computerised financial management systems, capturing the date of the transaction at the time of registration is an important part of the registration process. Registration, as a process is vital for accountability. It is also a key point at which a variety of data that can facilitate the accessibility and management of a record can be captured and made available.

All financial transaction records and supporting documents require registration. Records can be registered at one or more levels of aggregation within a records system depending on the assessment of the evidence requirements. Financial transaction records should be registered at the item level using reference numbers (eg purchase order number, payment voucher number, cheque number and so on). Often owing to sheer volume, paper transaction records may need to be filed for storage at the batch level using batch numbers. However, if this is the case, links should be maintained to the transactions through the batch numbers. In a computerised system transaction records are registered at the item (ie document) level. Financial documents such as contracts, tenders, payroll case files and so on should be registered at the file level. In practice, registration of financial records usually implies assigning purchase order numbers, voucher numbers, payroll numbers and so on, which are unique in principle but may overtime be recycled. The uniqueness of this number usually depends upon its being combined with a date of transaction, surname, supplier name and so on. This is not registration in the traditional records management sense as would be applied to records filed in a registry system, such as contracts, tenders and so on.

In manual (ie paper-based) control systems, a register is normally a separate record, where in computerised systems a register can comprise a combination of data elements. This may include classification and determination of disposal and access status. Computerised systems can be designed to register records through automatic processes, transparent to the user of the system and without the intervention of a records manager. Even where registration is not totally automated, elements of the registration process can be automatically derived from the computing and financial business environment from which the record originates.

Classification

A classification system for financial transaction records comprises the revenue and expenditure categories established by the government to plan revenues, expenditures, financing and other financial flows in the budget/planning system, and subsequently used as codes in the accounting system to classify actual revenues, expenditures, financing and other flows, and to record assets and liabilities. Classification systems enable an organisation to

All financial records should be registered and classified as the foundation for managing their use, retention and eventual disposal.

26 Part I: The Control System

organise, describe and provide improved access, retrieval, use and dissemination of its records, as appropriate. It organises files and documents into a logical (ie hierarchical) arrangement to facilitate controlled access and disposal. For example, tender board documents will be allocated a code that denotes that they have been generated by the tender board along with a document number. Many of such classification schemes are based on functions and activities because this provides the most logical and useful structure. This ensures that records relating to the same activities are linked together.

Tracking

The tracking function is concerned with the movement of records. A common mechanism for ensuring the integrity of financial transactions is to separate duties (eg one individual is responsible for creating the record, another for posting details to subsidiary ledgers and another for authorising). The record keeping system should be able to track records through processes and systems.

In order to aid retrieval, help maintain physical integrity and prevent unauthorised access or use, it is essential that the location and custody of financial records be controlled and monitored and that use be controlled through the implementation of user permissions and views in a computerised environment and through access restrictions in a manual environment. (See Access and Retrieval).

In a manual, paper-based records management system, each time a file is moved, this fact must be recorded in the records office. File movements are monitored in a number of ways: on file transit sheets that are filed in a file transit book, on transit ladders that appear on file covers, on file movement slips and through regular file censuses. This process works well for financial records that are filed in a registry or in a centralised office filing system (eg contracts, tenders, financial correspondence and so on). However, this may not be a practical method of controlling transaction records.

The day-to-day retrieval and movement of financial records within the records creating unit, eg the accounting office, does not normally require recording. Records retrieved from their permanent location for operational purposes should be returned at the close of business each day. The storage location of current and non-current records should be clearly identified and logged in a location register. If records are issued to another agency, this should also be recorded. It is advisable to limit the number of records issued to another agency and the period of time that they may be retained. For example, auditors may need to temporarily remove records from the system, but this loan should be monitored closely and the records should be retrieved if they are not returned within the agreed period of time.

A computerised financial management system should be able to track where a transaction is in the financial management process; links should be provided through the registration and classification process to the supporting paper source documents.

Tracking is critical to aid retrieval and ensure that records are not lost or misfiled. Staff should be able to determine in a timely and efficient manner the location of every transaction record or file, as appropriate, for which they are responsible. Tracking is also an important control for deterring unauthorised access.

Part I: The Control System 27

The financial instructions and/or accounting manual ought to specify clearly how transaction records are to be kept and where they are to be stored to facilitate access once the transaction is complete.

Access and Retrieval

Records should be physically identified and arranged to facilitate retrieval by authorised individuals for the entire period of their retention. It is important to maintain finding aids that document the location of all financial records storage facilities, and the location of particular records series. Strategies for retaining electronic records and associated metadata removed from current records systems have to be formulated to ensure that electronic records remain accessible throughout the entire period of their retention. Such strategies must be integrated into all systems design processes.

Access to records must be restricted to protect:

• the integrity of the financial records

• personal information and privacy

• intellectual property rights and commercial confidentiality

• security of property (physical, financial)

• state security.

Equally important, there may be legally enforceable rights of access embodied in the finance act, freedom of information legislation, privacy protection, and archival and legal process law. Development of security and access schemes should take these rights of access into account.

It is essential to identify who has rights of access to particular groups of financial records and to define the regime of restrictions. Security classifications should be clear and be captured as part of the systems business rules. Security classification differs from classification as described in the first section in that it identifies access rights and restrictions applicable to records and should take into account public service security and access classification rules. The more complex the organisation, the greater the need for standard procedures to apply access and security categories to records. The categories of access restriction should be developed in consultation with relevant business areas to reflect organisational usage.

Records must remain useable throughout their lifetime. However, access must be restricted to authorised individuals to protect the integrity of the records.

28 Part I: The Control System

Access classifications should be task-oriented (ie apply to job positions), both those with responsibility for managing the financial records and those with rights of access. As a next step, responsibilities have to be identified clearly. Those positions that have access to particular groups of financial records should be defined and captured in the records system. Where appropriate, the access and retrieval function in a computerised system should also take account of security and access classification schemes. The responsibility for allocating user permissions, particularly for computerised systems, should be clearly assigned to designated individuals against strict criteria.

In addition, records must be stored in secure accommodation in order to prevent unauthorised access. The individual in charge of the facilities should control access to storage facilities in accordance with prescribed security and access rules.

Maintaining an Audit Trail

Fiscal management depends upon the ability to secure timely, accurate and complete information. This makes financial systems different from many other kinds of systems. The record keeping system, whether manual or computerised, must provide sufficient and reliable evidence that only valid transactions have been processed. The system must permit the auditor to trace transactions between original source documents, system generated transactions (either manual or computerised) and internal allocation transactions and the financial statement, in both directions, and through successive levels of summarisation. The functions of tracking and maintaining an audit trail are closely related. The tracking function helps provide the audit trail, but the audit trail may include other information required by internal or external auditors. An important function of an audit trail is to link individual transactions with an aggregated total. An example of an audit trail may be a record showing the occurrence of specified events relevant to the security of a computer system. The register in a registry system and the minutes in a file also provide a form of audit trail. As mentioned, the tracking function in a computerised system also creates an audit trail. (See Tracking).

The audit trail should be well protected against manipulation by a variety of security provisions (eg automatic documentation of access, write-protection, off-line security copies, automatic access control and so on). It is impossible to fully protect records. However, using a combination of provisions, it is possible to make sure that it is difficult to manipulate them and that any changes can be traced back.

An audit trail is required to ensure that transactions can be traced from creation, through processing, to the final statements. Without an audit trail an auditor may not have sufficient appropriate evidence on which to base an audit opinion.